January 2021 – Page 4

Leveraging Big Data in Real Estate Investing

by Michael Jansta
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Post COVID-19 Forbearance & Foreclosure/Eviction Moratoria by Michael Jansta Let’s face it, nobody had 20:20 vision for real estate investing going into 2020. Now in 2021, even after all that we’ve seen and learned in 2020, our vision forward doesn’t appear much clearer. What we do see is COVID-19 continuing to rage on in all parts of the country despite vaccines in deployment, mortgage forbearance programs set to close but with the possibility of extension and moratoria on foreclosures and evictions extended until the end of January 2021 but also with a possibility (if not a probability) of being extended. Moratoriums on foreclosures put a stop to foreclosure sales in courtrooms and on the courthouse steps across the country. A mere trickle returned as abandoned/vacated homes and land were allowed to proceed to sale in some parts of the country. The double-whammy came from occupied REO and HUD’s Claims Without Conveyance of Title (CWCOT). A major source of post-foreclosure investor stock was hit by a nationwide eviction moratorium. With an eviction moratorium in place and continual extensions of that moratorium, attaining occupancy became virtually impossible to forecast. Basically, the acquisition of foreclosure sales and occupied post-foreclosure properties became exponentially riskier. Investors looking for distressed real estate were forced to turn to the retail market where demand was surging due to lack of inventory and historically low interest rates or compete over the small amount of existing pre-COVID vacant REO stock on or coming to market through property preservation channels. As of Dec. 6, 5.48% of active loans were in forbearance, according to the MBA, and trending down. This totaled approximately 2.7 million mortgages. At the same time, new forbearances requests hit their highest levels since early August showing that an increased COVID-19 surge is leading more homeowners to seek relief. This trend late in the year could be homeowners seeing protection as the window to enter a forbearance plan was scheduled to end on Dec. 31st. If the trend continues, we could see further extensions of forbearance options for affected homeowners. Either way, it still means that fewer homes will be headed to foreclosure in Q1 and Q2 of 2021 and that means less distress at foreclosure sales and REO/CWCOT second chance auctions. Lack of traditional inventory will force investors to get more inventive and figure out how to find deals within their existing markets, new markets, new sub-markets and the homes within them using data…BIG data. When leveraging all the data available today, investors need to be cognizant that these really are unprecedented times and the pandemic created unprecedented economic spikes in its wake. Data trends in nearly every sector set high & low peak records, jumping a decade worth of increases or decreases within a single quarter. These wild movements broke data science models in every industry, including real estate. This is the reason we all hear about V, W and K shaped recoveries. In real estate, loans in forbearance spiked up then slowed dramatically to a much lower rate, loans in default have climbed from 3.8% to 6.3% (3.6 million loans) from August 2019 to August 2020 and, similarly, unemployment spiked up and then dramatically slowed. These statistics are often built into real estate market models and can deliver false positives and negatives. It is more important than ever to know which data is being applied within each model so you can make educated decisions factoring in the swings from 2020 that will continue into 2021. At Altisource, we look at dozens of public datasets to build into our models for our institutional clients and to validate the advice and recommendations for investors and agents/brokers who leverage our Equator, RentRange and Hubzu platforms. It requires crunching data sets like US Census data which includes Household Income (HHI) with home price data, our proprietary RentRange rental data, loan performance data (forbearance and delinquency) and many others into dashboards so we can compare markets with each other to see things like how many and what percentage of loans are delinquent, in forbearance or both. When you can map this data to MSAs you can then begin to layer in other data (examples would be employment data from the Bureau of Labor Statistics and Department of Labor or actively marketed rental or sale listings) to predict which markets might be more attractive for real estate investing when artificial barriers like forbearance and moratoria are modified or removed. When you layer this data over time into models with dashboards, we can look at a specific market in different ways: Household Income as a percentage of rent or home value trending over the past 5 or 10 years in that market. Comparing markets can show where high wage growth beats low wage growth and how that compares to real estate price increases versus rent increases. Some of these models can be productized like RentRange where markets or individual properties are analyzed to calculate cash flow and yield potential based on known comparable rents. Another example is at the property level on Hubzu.com where we crunch dozens of datasets to populate the investor calculator on each property on the Hubzu.com marketplace with estimates of current value, rent potential powered by RentRange, vacancy, property management cost, property taxes, HOA amounts, rehab costs and more to estimate monthly cash flow and gross/net yields. Investors can adjust these numbers in real time to see potential returns based on different auction bid amounts. Looking at a real market example, like Pensacola, can help to put things into perspective, especially when you compare that market to others across the country. Above is a “jitter plot” which looks at market data across the top 200 markets in the U.S. and shows how markets stack up against each other. The dark spots show where the Pensacola MSA ranks in each category within these top 200 markets. The first two columns show that rent (+36.5%) and home prices (+39%) have increased significantly compared to the other markets putting Pensacola in

2020 Has Been a Year of Adaptation and Expansion

by Peter DiLello
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Using Your Core Values for Record Performance by Peter DiLello Investing in real estate demands constant adjustments to factors outside our control. That has been particularly true this year, as the world confronts a global pandemic. At Invitation Homes, we spent the early days of the COVID-19 pandemic adjusting our practices and protocols to protect our residents and associates and developing programs to assist residents in financial distress. However, by summer, we realized the pandemic was not impacting the bulk of our residents financially. Instead, it was fueling demand for the single-family homes we own. Now, we are at the cusp of a major expansion that few outside our company would have predicted in the depths of March or April. Adaption was a major theme for Invitation Homes this year. Late in the first quarter, Invitation Homes made the intentional decision to pause acquisitions and prioritize the safety of our residents and associates. We strive to be the best operators in the industry and have offered a variety of options for residents confronting financial hardships, working with many to find the best solution for each situation that will keep them healthy and in their homes. The steps we took are central to our company’s core values, and part of the reason we experienced a record-high occupancy of 97.8% in the third quarter. Invitation Homes’ strong financial footing has left the company in the best position to respond to resident needs and deploy a growth-minded approach moving forward to meet the desire for single-family rental homes. During our acquisition process, we consider many of the same factors as first-time home buyers: optimal layouts, quality appliances and close proximity to good schools, parks, and employment centers. That last factor—“location, location, location”—is the single most important for any real-estate investor whether you are an individual owner managing several properties or a large company managing many. Location, Location, Location At Invitation Homes, “location” has two meanings: the neighborhoods where we like to buy homes and the regions of the country in which we choose to deploy our capital. We spend a lot of time considering both meanings when we buy new homes. Regionally, we consider migration patterns to determine where in the country to invest. We tend to buy homes in competitive areas where people are moving. This often means the Sunbelt, or “The Smile,” those states stretching from the Carolinas down to Florida and across the Southeast and Southwest to California. These markets are desirable because they continue to grow faster than the country as a whole, thanks to a population shift to affordable, less-dense markets with diverse economies. This consistent population shift continues to drive demand for single-family rental homes across the Sunbelt and helps explain the resilience of these housing markets throughout the pandemic. In Atlanta and Phoenix, REITs reported 8% and 12% growth on new leases in the third quarter of 2020, respectively. And geographic winners according to multiple sources—REIT commentary, John Burns Real Estate Consulting’s quarterly Single-Family Rental Market Index survey, and population growth trends as of September 2020—include Arizona, Nevada, Texas, Georgia, Colorado, and Florida. Housing Trends A recent survey of 175,000 institutionally managed single-family homes across 55 markets found that 59% of new single-family rental residents are relocating from urban locations. The same survey also observed that 32% of new single-family rental residents are moving from apartments, and 46% are coming from similar rental properties, leading to the conclusion that the industry is not gaining massively from apartments but is instead benefitting from better locations that provide value for people who prefer to live in a lower density, detached home. From our own survey sent to new residents who moved into our homes during the third quarter of 2020, we learned that the need for more space is the number one reason for moving into a single-family home, with 34% of respondents saying it was their primary motivator. Throughout the acquisition of new properties, Invitation Homes prioritizes high-quality homes that meet the evolving needs of residents. Even before the pandemic, our ideal home had three bedrooms with two baths, an attached parking structure, and was somewhere between 1,700 and 2,400 square feet. Establishing this standard early on has ensured that the floor plans of our homes are convenient and meet the lifestyle needs of our residents, positioning us well as housing trends change. Despite the pandemic and resulting recession, demand for single-family homes remains historically strong, by some measures. Resale homes are sitting on the market for just 21 days, an all-time low, according to John Burns data. Bidding wars are now common, with each sold home averaging 3.4 offers, up from 2.1 a year ago. We expect low interest rates, tight housing supply, rising home equity and continued price appreciation to fuel a continued boom in the resale market through next year. Home prices in some top single-family rental markets are climbing more than 10%, year-over-year, including Phoenix (15%) and Tampa (13%). These fundamentals are driving demand among single-family rentals, as well. Occupancy rates are touching all-time highs in a number of REIT markets and rent growth on new leases on single-family homes is up 3.8% year-over-year, according to the Burns Single-Family Rent Index. New Influx of Capital That insatiable demand for single-family homes in multiple markets continues to stoke investment that is keeping the industry hot. Outside investors are realizing the value in the industry as residents continue to show desire for the flexibility single-family rentals offer. Invitation Homes recently announced a $375 million joint venture with Rockpoint Group, L.L.C. to expand our portfolio, American Homes 4 Rent raised $625 million through a joint-venture with JPMorgan’s asset-management arm, and a former Colony Capital Inc. executive is raising $1.2 billion in equity and debt to build 5,000 rental homes. This influx of capital is not a surprise to those of us who have been in the industry from the beginning. Housing is a universal need, and Americans are increasingly drawn to the flexibility of renting,

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ATTOM, curator of the nation’s premier property database, has hired seasoned veteran Stuart Bern as head of strategic partnerships & corporate development. In this role, Bern will lead the development of new partnerships and support M&A efforts, as ATTOM continues its exponential growth. This appointment signals ATTOM’s ongoing expansion and its commitment to expand strategic business relationships. “Stuart’s wealth of business development experience and go-to-market strategies will make him an extremely vital asset as ATTOM further expands its data footprint and accelerates its business growth,” said Rob Barber, CEO of ATTOM. “His expertise in growing a B2B ecosystem and his proptech knowledge, will guide us as we take additional steps to drive market growth and build strategic partnerships.” This exciting announcement comes on the heels of ATTOM’s recent acquisition of Home Junction, solidifying ATTOM’s mission to increase real estate transparency, and showcasing its steadfast investment in data and people. “I am excited to join the ATTOM family,” said Bern. “I look forward to leveraging my previous experience in identifying and building strategic partnerships to continue ATTOM’s already tremendous growth and to further scale our business.”

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eScreenLogic, a leading provider of commercial real estate due diligence services, is expanding its Platform-as-a-Service (PaaS) technology as a part of its growth, and has rebranded to become CREtelligent™. The company’s platform provides professional insights to empower lenders and corporate real estate professionals to make strategic decisions with instant access to and interpretation of environmental, valuation, and other relevant due diligence data on properties. The new name and brand identity reflect the company’s vision for the modernization of CRE due diligence processes with a transformational approach to delivering unbiased, insightful, data-driven solutions that optimize costs and time. “We’re excited to unveil our new name, CREtelligent, as it reflects the exceptional growth, quality, turnaround times, and world-class customer experience that we offer to our customers in the commercial real estate ecosystem. Our PaaS solution expedites transactions by providing accurate, intelligent, and ultra-fast environmental and related due diligence insights and data, while simultaneously providing customers with environmental engineering experts across the country at their fingertips,” said Anthony Romano, CEO, CREtelligent. CREtelligent is powered by the Radius platform that aggregates local, state, and national property databases to streamline the evaluation of the environmental condition of a commercial property through a proprietary interface that creates a visualization of the data.

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The COVID-19 pandemic and associated shift to working from home have transformed the location and feature requirements of both homebuyers and renters, according to companion surveys of more than 1,000 consumers and 600 real estate professionals by Homes.com. The “new normal” is fueling more moves from cities to suburbs, more long-distance moves, and new space and amenity demands while also prompting sellers to be more selective in a market where 95% of transactions are receiving multiple offers. A majority of these moves are likely to be permanent, with nearly three out of four consumers who have moved or planning to move to take advantage of remote work opportunities reporting they will not return to their pre-pandemic residences. “The surge in the work-from-home population has rewritten the playbook for many homebuying and rental decisions, from when and where to relocate, to what people are looking for in their next residence,” said Homes.com President, David Mele. “That, in turn, is prompting changes for real estate professionals, many of whom are expanding their market area to better serve clients who are moving farther than before. If working from home becomes standard operating procedure for many companies, as predicted, these changes will be with us for years to come.”

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Lument, a national leader in commercial real estate finance, has been ranked second in Federal Housing Administration (FHA) multifamily and seniors housing and healthcare lending for the fiscal year ending September 30, 2020, according to year-end figures released by the U.S. Department of Housing and Urban Development (HUD). The firm was runner-up for closed loan volume as well as loans closed. “We continue to be a proud partner of HUD and a champion of its lending programs,” said Lument CEO James Flynn. “They provide our clients with exceptional long-term certainty, especially in this historically low interest rate environment.” This was a record year for FHA, with 1,237 closings totaling over $22 billion, an increase of 58% year-over-year. “That HUD was able to record such impressive volumes despite the challenges posed by the COVID-19 pandemic is a testament to the dedication of its staff and the attractiveness of its programs,” Flynn added. The 2020 HUD volume does not include note modifications, which reduce interest rates on existing HUD loans. During this period, Lument closed more than 70 note modifications for seniors housing and healthcare borrowers totaling more than $740 million, bringing its total FHA lending volume in this category to $1.5 billion.